Asian stocks followed Wall Street down on Wednesday as jitters over the euro zone's debt crisis prompted investors to keep cutting riskier positions, while the euro steadied after hitting a four-year low.
The yen fell broadly after Japan's Prime Minister Yukio Hatoyama said he would resign, reflecting the view that the front runner to replace him, Finance Minister Naoto Kan, is seen as preferring a weaker yen.
The sell baton is expected to be passed on to Europe. Financial spreadbetters see Britain's FTSE 100 <.FTSE> opening as much as 1.6 percent lower and Germany's DAX <.GDAXI> falling as much as 1.3 percent.
The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS>, which has underperformed world equity markets <.MIWD00000PUS> so far this year, fell 0.9 percent.
Japan's Nikkei stock average <.N225> fell nearly 1 percent, surrendering some early gains.
The euro area's debt crisis has prompted investors to shed riskier investments, including Asian stocks.
In the latest investor scare, the European Central Bank said on Monday, a holiday in Britain and the United States, that banks in the bloc could suffer 195 billion euros of write downs by the end of 2011 in a second wave of losses from the global financial crisis.
Shanghai shares <.SSEC> slipped 1.6 percent, extending losses for the week, as banks' fundraising plans weighed on sentiment which also dampened Hong Kong stocks.
Bank of China, which is raising 40 billion yuan ($5.9 billion) by selling convertible bonds in Shanghai, said on Tuesday it may consider new fundraising plans.
Taiwan stocks <.TWII> fell just over 1.3 percent, with iPhone maker Hon Hai Precision Industry <2317.TW> slumping 4 percent after the company said it would raise wages at its Foxconn unit in China by 30 percent following a string of deaths at the plant.
The dollar rose as much as 0.9 percent to 91.78 yen, its highest since May 20, after news of Hatoyama's resignation.
The market may become cautious over the possibility of government moves to restrain yen strength because Kan has shown his preference for a weaker yen, said Masafumi Yamamoto, chief FX strategist in Japan at Barclays Capital.
But given no signs that business leaders have complained to the current government about a higher yen, the chance of Japanese currency intervention remains very low, Yamamoto said.
The euro briefly hit $1.2263, buoyed by its gain against a weak yen.
But it later pulled back to $1.2205 after a report that ECB board member Christian Noyer said the exchange rate of the euro against the U.S. dollar was not unusually low.
The euro hit a four-year low of $1.2110 on Tuesday after the ECB's warning of a new wave of bank losses.
Traders said euro selling pressure is likely to continue as the market grows more confident that the U.S. economy and its banking system are in much better shape than Europe's.
Oil fell 0.8 percent to $72 a barrel, continuing a recent slide off the back of a strong dollar and Chinese and European data that raised concerns about the prospects for the global economy.
Spot gold fell to $1,223.20 an ounce, down 0.6 percent from a two-week high hit on Tuesday after the ECB's report on bank losses.
(Editing by Neil Fullick)